Exchange Control,Black Market for Foreign Exchange,and Employment in a Model with a Nontraded Good |
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Authors: | Rajat Acharyya |
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Abstract: | This paper examines the employment effect of devaluation in a model with a nontraded good and a black market for foreign exchange. The disaggregative approach reveals, in contrast to an earlier one-sector analysis, that overall employment may change even if the exchange control is such that aggregate output remains the same following devaluation. But in such a situation, depending on the state of the market, the change in nontradables demand due to a change in the black market exchange rate constitutes the major source of a contractionary effect, and that too happens when, most desirably, the black market rate appreciates. |
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